Is Life Insurance Money Taxable?

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Typically your life benefit is not taxable. Find out if and when life insurance money is taxable with help from a dedicated insurance professional in this free video clip.

Part of the Video Series: Insurance Help
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Video Transcript

Hi, my name is Doug Levi. I'm principal agent and owner of Strategic Insurance Services. Today, I'm going to talk to you about is life insurance taxable. And it really comes down to a few situations with this. The first and probably the most important thing I would tell you is you want to consult your CPA or accountant. I'm not a tax adviser but I will give you some general guidelines as to how life insurance works with it's taxation as best of my knowledge. Typically your life benefit is not taxable which is a huge advantage of life insurance itself. So what does that mean. Lets say I am married, I have a $500,000 policy, I die, $500,000 then goes to my wife. My wife inherits that $500,000 she's not required to pay taxes on that. And that is a great benefit of the life insurance. The other thing that you need to look at is the cash value. And the cash that sits in that cash value. And how is that taxed? Well that gets a little trickier. What they are going to look at there is the cost basis. That means how much money have I put into the policy and how much have I taken out. Typically anything that I have gained as accumulative gains, when I take that out, I am going most likely have to pay taxes on that. Now while that money accumulates and grows very similar to a 401K or very similar to an IRA the money is tax deferred. So it's not being taxed while it's growing. Again when I take it out they are going to look at how much money have I put into the policy. Lets say I put $50,000 into the policy in actual premiums paid. And my cash value at the time lets say is $75,000. Well there's a $25,000 gain there, that's what I am going to be taxed on. In summary the most important thing is to really understand your policy. Call your carrier or your local agent and certainly also include your tax adviser in this conversation. If you'd like more information on life insurance you can go to our website at www.tampabayinsurance.net. This has been how is life insurance taxed? My name is Doug Levi. I'm the principal agent and owner of Strategic Insurance Services.

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